Marina Gorbis's Blog, page 1491

Sell Your Product Before It Exists

There’s crowdfunding and then there’s crowdfunding. While most startups who set up pages on Kickstarter, Indiegogo or a host of other crowdfunding sites are looking to hit a specific goal and then get started making their project a reality, a new crop of businesses are using the platform for as a wholly different business model: selling their product before it exists.

It’s a model that isn’t entirely new — software companies have long used “vaporware” campaigns to get an injection of cash by selling software before it’s available. However, these new businesses are doing with tangible products what had only before been done with software. The most recent standout in the class of “vaporgoods” is Coin, which straddles the divide between software and hardware. If you haven’t seen the promos yet, Coin is a new device that aggregates all of your information from credit, debit, and even loyalty cards and can be swiped just like a regular credit card. Coin’s makers first launched a $50,000 crowdfunding campaign and, after hitting their goal inside of 40 minutes, are continuing to take pre-orders at half the future retail price. It’s unknown how many units of the device have now been pre-sold. However, the real success isn’t in the amount of cash Coin raises; it’s that the minds behind Coin have proven there’s a market demand for their product using the only research method that counts: the market itself.

Coin’s pre-existence sales push the concept of minimum viable product (MVP) even further. When Eric Reis was popularizing the concept of an MVP, the guiding principle was to build and release a product with as few features as possible, and then use the market’s reaction to gauge how to refine the product. Coin has managed to test the market without ever actually releasing the physical product. It’s important to note that they undoubtedly developed and tested prototypes, but many customers made the decision to pre-order without ever holding a prototype. In addition to the benefits of an MVP strategy, Coin’s strategy allowed them to mitigate our internal bias against innovative new ideas. Often when a new product, creative work, or ideology is released, the initial reaction isn’t as strong as the creators hoped. Most studies show that 50% or more of all new product launches fail.

Research led by Jennifer Muller has shown that, at least subconsciously, humans have a hard time seeing past the newness of something to recognize its usefulness. Coming up short in the mind of the consumer is one reason for the overwhelming rate of failures in product launches. Needless to say, those product failures come at a loss of capital spent on everything from produce development, distribution costs, marketing, and even the cost of returning unsold goods. Especially when selling a device that stores sensitive information, this bias is a major hurdle to product adoption, and Coin went to great lengths to attempt to put consumers at ease (including a 75-question FAQ on their website). But even when potential customers see the product and opt to pass, or wait for the next iteration, Coin doesn’t lose nearly as much as if they’d pushed for the widespread distribution of a traditional retail launch.

Exactly what causes a new product’s success or failure in the market is still widely speculated. New product launches are always a gamble, and strategy isn’t about perfection. It’s about increasing your odds of winning. Until we find out how to guarantee market adoption ahead of time, Coin’s strategy of selling the product before it really exists looks like an effective way to stack the deck with minimum losses and maximize possible gains.

It may not be the right strategy for every industry. But if it’s possible, consider selling your new product before it exists.

The Ideas that Shaped Management in 2013

It’s always tempting at this time of year to try to make a definitive list of the best ideas from the past 12 months. But then we end up debating what counts as best — important? useful? original? all three? — and compiling extremely long lists, struggling to shorten them, and over-thinking it all, when the point really is just to gather some really good reading for you for any free time you happen to find over the holiday. So this year, instead, we thought about the pieces that most surprised us or provoked us to think differently about an intractable problem or perennial question in management, we reviewed the whole year of data to remind ourselves what our readers found most compelling, and we looked for patterns in the subjects our authors raised most frequently and independently of our editorial urging.  The result, I think, is a set of ideas that together are important, useful, and original, and that feel like quite an accurate account of the management concerns many of us shared in 2013.

Here’s the list.  See what you think:

1.  Leaning in will only get us so far.  If the workplace is going to work for women — and for families — men need to change, and so do our expectations of them.  Their tendency toward overconfidence is often mistaken for competence and rewarded with promotions, and their masculine identities require that they work too many hours and get too little sleep, putting extra pressure on women whose greater home- and kid-related responsibilities prevent them from competing on quantity.  The good news is that millennial men are changing the way they define leadership and demanding work that fits around their families.  And the seven policy changes Stew Friedman recommends would benefit all working Americans.  Note: the majority of the pieces below were written by men.

Why Do So Many Incompetent Men Become Leaders?

Why Men Work So Many Hours

It’s Not Women Who Should Lean In; It’s Men Who Should Step Back

Real Men Go to Sleep

Meet the New Face of Diversity: The “Slacker” Millennial Guy

7 Policy Changes America Needs So People Can Work and Have Kids

2.  If your knowledge-based industry hasn’t been disrupted yet, get ready. According to Clay Christensen and his coauthors Dina Wang and Derek van Bever, the strategy consulting industry is about to blow up the same way the legal world just did.  McKinsey may have been hired in 2013 by the Vatican, the Bank of England, and the owners of the Rangers and Knicks, but they’re also acting to stave off threats to their business model. Meanwhile, Michael Porter explains exactly how health care needs disrupting, professors from INSEAD and MIT debate the merits of the MOOCs that might upend higher education, and our own Sarah Green tells publishers to quit whining about disruption and start enjoying the innovation that goes along with it.

Consulting on the Cusp of Disruption

The Strategy That Will Fix Health Care

Stop Requiring College Degrees

Let Them Eat MOOCs

Publishers, Stop Crying Over Spilled Milk

3.  The right kind of project management — and project manager — really matters.  It’s impossible to get through another sentence, of course, without mentioning Healthcare.gov, though it sounds like project management was only one of that initiative’s many management problems. But to be fair to the U.S. government, excellent project management is extremely rare.  Its practitioners are the modernization of the much-maligned yet depended-upon middle manager.  Research and examples published in HBR this year — including an account of a much more effective government agency’s approach to solving problems — prove how critical they are to innovation.

Special Forces Innovation: How DARPA Attacks Problems

What Sets Effective Middle Management Apart

What Manufacturing Taught Me About Knowledge Work

The Hidden Indicators of a Failing Project

4.  The rest of us still have a lot to learn from Silicon Valley.  American tech entrepreneurs earned some bad press this year, but in HBR, they proved why more established firms should not stop watching them closely.  In “Why the Lean Start Up Changes Everything,” Steve Blank outlines how big companies including GE are adopting the minimal, iterative approach to nearly every aspect of launching new enterprises and how, if adopted more widely, lean start up methods could lead to a more entrepreneurial economy overall.  And the applicable lessons aren’t just about innovation — many of the best new ideas in people management, from hiring practices to leadership development, are emerging from places like LinkedIn, Google, and Netflix.

Why the Lean Start Up Changes Everything

Tours of Duty: The New Employer-Employee Compact

How Google Sold Its Engineers on Management

How Netflix Reinvented HR

The Danger of Turning Cynical about Silicon Valley

5.  Technology offers real hope for Africa’s economic future.  In a column in the March issue, Richard D’Aveni predicts that 3-D printing will precipitate China’s fall from manufacturing grace, sending economic power back to the West. Ed Bernstein and Tim Farrington from the Industrial Research Institute imagine the global realignment differently; they see Africa, with its valuable natural resources and a young and increasingly educated population, building an immense black market for 3-D printed goods and coming to dominate the global economy.  We also found seven other reasons Africa’s economy might leapfrog the economies of more developed nations.

3-D Printing Will Change the World

Imagine a Future Where Africa Leapfrogs Developed Economies

Seven Reasons Why Africa’s Time Is Now

6.  Being nice makes you a better leader and your company more profitable – new research proves it.  Amy Cuddy, Matthew Kohut, and John Neffinger answered Machiavelli’s question:  is it better to be loved or feared?  The best way to influence and lead others, they say, is to begin with warmth.  And that’s not all:  Generous behavior is associated with higher unit profitability, productivity, efficiency, and customer satisfaction, along with lower costs and turnover rates.  The best leaders favor oxytocin and its effects over adrenaline and dopamine.  And rudeness in the workplace hurts the bottom line. Luckily, Susan David and Christina Congleton explain how you can learn to do a better job of managing your thoughts and emotions in Emotional Agility.

Connect Then Lead

Break Your Addiction to Being Right

In the Company of Givers and Takers

The Price of Incivility

Emotional Agility

7.  It’s possible to make more time in the day after all.  It took three years for Julian Birkinshaw and Jordan Cohen to figure out how to free up 20% of your work day.  And a group of researchers in the UK found that organizations can dramatically reduce the amount of time their employees spend on email, if they can convince executives to stop emailing so much.  Finally, there’s one more thing you can do to save time:  stop complaining so much about how busy you are.  Meredith Fineman’s rant on the subject struck many of our nerves — it was one of the most popular posts of the year.

Make Time for the Work That Matters

To Reduce Email, Get Execs to Send Fewer Messages

Please Stop Complaining About How Busy You Are

Accelerate Your Start-Up with Fortune 500 Allies

Meet Phil. He’s just graduated from college and wants to spend more time rock climbing, so he decides to sell burritos to pay the rent. Where to start? He heads to his local Costco and buys $200 in bulk bags of rice, beans, and tortillas. He cooks up a few batches of burritos and begins selling to small convenience stores, heading back to Costco whenever he needs to restock his ingredients. Soon Phil is trucking along and realizes there might be a business in these burritos. But to grow outside of his town, he needs to land a major store account.

Enter Whole Foods. The local Whole Foods buyers like Phil, and they like his product. They decide to give it a chance. Soon, Phil’s line of burritos—now known as EVOL—is on shelves across the country. And they’ve just announced that they’ve sold the company for $48 million dollars.

In the world of early-stage food startups, two heroes have emerged: There’s Costco, which gives small entrepreneurs the power of bulk buying. And there’s Whole Foods, which connects entrepreneurs with customers. Both of these big businesses empower small start-ups. Phil’s story fits into a pattern I heard over and over again as I interviewed successful food entrepreneurs for my book, Cooking Up a Business, and is indicative of a larger startup tactic: identifying empowerment players on both ends of your supply chain. Here’s what you can learn, and how it applies to any young business:

1. Harness the power of collective bulk buying

In start-up world, every penny matters, and getting more for less is a win.

Costco offers food entrepreneurs a way to buy like the big guys: when you have limited resources of money, buying power, and manpower, you can come to one place and use the power of Costco to get many of the benefits of a bulk buy without the need to truly buy in bulk or negotiate with supply chain vendors. While you walk out with just what you need, in theory you’re joining together with hundreds of other entrepreneurs. Phil was so successful with this strategy that he used Costco for the first three years of his business—so much so that one day he got a call from Costco: he was actually the #1 buyer in Colorado for the previous 52 weeks!

Costco is the obvious choice for food start-ups — in other sectors, there are other bulk wholesalers which are also accessible and consumer-facing like Amazon Web Service for cloud computing power, Paper Source for paper and printing goods, and Joann’s for fabric. Look at your supply chain, whether it’s goods, services, software, cloud space. If there’s not an existing bulk provider, can you create a loose amalgamation of start-ups that can come together to harness the power of a bulk buy?

2. Harness the power of the local or startup-friendly re-seller

Now that you’ve secured your supplies, it’s time to look upstream for customers. In food startups, that means selling to a grocery store chain.  And over the last few years, Whole Foods has emerged as the go-to spot for the startup entrepreneur. Why? Because Whole Foods strives to source 25% of its products at the local level, so buying from regional, often small and new companies, is actively encouraged.

This means that companies like Phil’s can walk in and know they have a better-than-average chance of getting on the shelves at their area store. And if their product sells well locally, then they’ll be able to talk about moving into other districts.

But what if you’re not selling food (or beauty, which has a similar Whole Foods effect)? Early on, identify a handful of buyers who make it part of their mission and protocol to work with and buy from early-stage companies. For example, later-stage and well-funded start-ups often make it a point to buy from other start-ups, whether that’s services, software, or consumer goods like food, clothes, electronics, furniture, or more. At an early stage, your own version of Whole Foods can offer an accessible path to larger growth.

At the end of the day, Costco has become a massive, but relatively unknown, supplier to Whole Foods. It may be counterintuitive, but the two behemoths often anchor opposite ends of the supply chain for early stage food startups. An entrepreneur can buy from family-size, warehousey, no-frills Costco, and a few weeks later the product of those raw ingredients (with the magic of packaging, branding, and a stellar pitch) can literally be on shelves in Whole Foods, where they’re dressed up with great lighting, storytelling, and a feel-good atmosphere. (And while food companies obviously sell at Costco, they’re usually much larger and more established by the time they reach that stage and have their own supply chains in place—they’re no longer buying at Costco! For example, Phil’s company EVOL is now doing millions of dollars worth of sales at Costco each year.)

Putting this supply chain strategy into action in your start-up requires identifying your sector’s key empowerment players—and being strategic about who can help most in the early stages of your growth. As a food company grows, it will outgrow Costco as an ingredient source and the local Whole Foods will be just one data point of thousands. But in the beginning, knowing and using your empowerment players is priceless.

Building a Feedback-Rich Culture

As an executive coach and an experiential educator, I’m a passionate believer in the value of interpersonal feedback. To become more effective and fulfilled at work, people need a keen understanding of their impact on others and the extent to which they’re achieving their goals in their working relationships. Direct feedback is the most efficient way for them to gather this information and learn from it.

But the form that most interpersonal feedback takes — a conversation between two people — can trick us into seeing it as a product of the relationship when it’s equally (if not more so) a product of the surrounding culture. Even people who aren’t interested in or skilled at giving or receiving feedback will participate in the process (and improve) when they’re working in a feedback-rich environment. And the most ardent and capable feedback champions will give up if the organizational or team culture doesn’t support their efforts.

So as leaders, how do we build a feedback-rich culture? What does it take to cultivate an ongoing commitment to interpersonal feedback? Here are four essential elements:

1. Safety and Trust

To give and receive truly candid feedback, people must feel a sense of safety and trust. Neurologist and educator Judy Willis emphasizes the relationship between positive emotion and performance, and as leaders we need to foster it to ensure that colleagues learn from feedback. Note that this does not mean avoiding confrontation or offering only support and comfort. It does mean being highly attuned to people’s readiness for a challenge and their emotional state in a given interaction.

To create safety and trust:

Get to know each other. Make an effort to understand colleagues as individuals. This doesn’t require a great deal of time or deep, personal disclosures — just taking a moment to ask about someone’s weekend and occasionally sharing stories of your own.
Talk about emotions. The ability to discuss emotions is a critical feature in any group that aspires to share effective feedback, not only because feelings are at the heart of most difficult feedback, but also because feedback inevitably generates difficult feelings. When we can talk about our embarrassment, disappointment, frustration, and even anger, the culture is sufficiently safe — and robust — to handle real feedback.
Make it OK to say no. A risk in feedback-rich cultures is that people feel obligated to say “Of course,” when asked, “Can I give you some feedback?” The freedom to postpone such conversations when we’re not ready to have them ensures that when they do take place all participants are willing parties.

2. Balance

We often think that good feedback is honest criticism, but that’s just half the story. The other half is truly meaningful positive feedback, which is all too often absent in organizations. You can’t have one without the other, but so many obstacles prevent us from offering and accepting positive feedback. We worry it will sound insincere. We worry it is insincere. We worry it will make us look like suck-ups. We worry it will make us seem weak. And since we don’t do it very often, we’re not very good at it. But recent research at Ghent University in Belgium indicates that positive feedback promotes self-development. Further, as University of Washington psychologist John Gottman has noted in his study of long-term relationships, in the most successful ones the ratio of positive to negative interactions is 5:1 even in the midst of a conflict. Strong relationships depend on heartfelt positive feedback — so we need to practice.

To establish balance:

Offer some positive feedback…and stop there. Too often we use positive feedback to cushion the blow before delivering criticism, but that practice inevitably degrades the value of our praise and renders it hollow.
Start small. We miss opportunities to provide positive feedback every day because we have this idea that only big wins merit discussion. When we see any behavior we want to encourage, we should acknowledge it and express some appreciation.
Praise effort, not ability. Research by Stanford psychologist Carol Dweck suggests that praising persistent efforts, even in failed attempts, helps build resilience and determination, while praising talent and ability results in risk-aversion and heightened sensitivity to setbacks.

3. Normalcy

Trainings and workshops can create space for people to be open to new ideas and experiment with new ways of communicating, but the next day everyone goes back to the real world. You have to integrate the behaviors you want into your team’s daily routines in order to normalize those behaviors within the organization’s culture. If feedback is something that happens only at unusual times (such as a performance review or when something’s gone wrong), it’ll never really be an organic part of the organizational culture. It has to show up in everyday life — on a walk down the hallway, at the end of a meeting, over a cup of coffee.

To make feedback normal:

Don’t wait for a special occasion. A mentor of mine, Vince Stehle, once told me, “Don’t build a castle; put up a thousand tents,” and that certainly applies to feedback. Don’t turn it into a complex, cumbersome process; just take a few minutes (or even a moment) and make it happen.
Work in public. Certain conversations are best held one-on-one, but too often we treat all feedback as a potentially embarrassing or even shameful process to be conducted under cover of darkness. When sufficient safety and balance exist, even critical feedback can be provided in larger groups. This not only allows everyone present to learn from the issues under discussion but also allows people to see how to give and receive feedback more effectively.

4. Personal Accountability

As leaders who want to promote a feedback-rich culture, we have to walk the talk every day. Research by Harvard Business School’s Lynn Paine and colleagues makes clear that employees are more sensitive than leaders to gaps between companies’ espoused values and actual practices. Our teams will take their cues from us as to what’s acceptable, and if we don’t take some risks in this area, they won’t either. Why should they? This doesn’t mean we’re going to get it right all the time. If we’re taking some meaningful risks, then of course we’ll make some mistakes. The key is to fail forward and view those mistakes as essential learning opportunities. Let those around us know that we’re trying to get better at giving and receiving feedback, too, and ask for their input on how we’re doing.

To walk the talk:

Be transparent. Everyone around us – colleagues, superiors, direct reports – should know that improving at giving and receiving feedback is an ongoing goal of ours.
Ask. We can’t just sit back and wait for feedback to be offered, particularly when we’re in a leadership role. If we want feedback to take root in the culture, we need to explicitly ask for it.


Culture That Drives Performance

An HBR Insight Center




The Defining Elements of a Winning Culture
There’s No Such Thing as a Culture Turnaround
The Three Pillars of a Teaming Culture
Three Steps to a High-Performance Culture

So Long, Giant Check Ceremony: The New World of Charitable Giving

Say goodbye to the glory of the “giant check” ceremony, the requisite Toys for Tots drop box, and the depressing ASPCA commercials: The ways corporations, marketers, and individual donors are approaching charitable giving is starting to change dramatically — for the better and worse.

Michael Norton, an associate professor at Harvard Business School and the co-author of Happy Money: The Science of Smarter Spending, studies the relationship between business, charity, and a person’s motivation to give. An edited version of our recent conversation is below.

How are companies are thinking about making donations this time of year?

Some companies now allow employees to set aside money at the beginning of the year, from which they use to make a donation each month. This provides employees with an initial happiness boost from giving, and then an additional boost each month when they decide where to give. Even better, because they’ve already committed the money, it’s not as painful to donate. It is an interesting way to help people commit to giving that also maximizes the happiness we get from giving.

PwC is working with a non-profit called Givkwik to similarly innovate in this space. For many years, companies have offered matching donations: if you give, the company will match it. PwC and Givkwik are now just giving employees money to give to charity.

Imagine getting an email from your employer that says, “Here is some cash, feel free to give it wherever you want,” then going to a website where you can give to one of several charities that the company is supporting. It’s a kind of “prosocial” bonus in addition to the more traditional bonus many companies give their employees.

Does this fit in with how companies traditionally think about doing good around this time of year?  Is it usually the case that a company picks one big cause and tries to get everyone to rally around it?

It is still often the case that a company decides on one charity to support, and, equally often, the CEO decides on the charity. It’s extremely idiosyncratic, because the cause is whatever the CEO happens to pick. It’s sometimes the case that the cause ends up being one that the company’s employees do not care about, or that the company’s customers do not care about.

Some companies now involve employees and customers in the selection process, empowering their stakeholders to determine what — and whom — the company supports.

On the one hand, it gets people more excited about giving, with a high return on investment for both the employees and the companies. On the other it seems like this would disperse where the money is going. Are the charities themselves benefitting from this change?

Essentially, companies are trading off the benefits of supporting one cause against having employees feel that their company helped them to support a cause they are passionate about. The hope is that employees will say, “this is the kind of place I like to work.”

Charities aren’t always excited about these innovations, because if you had a relationship with a company for many years, you are accustomed to getting a regular lump sum. New approaches really open up the door for employees to give to many different causes, complicating matters for non-profits.

Many companies try to balance these issues with a hybrid model. The CEO doesn’t just pick one cause, but allows the employees to select, say, five charities. Employees still feel empowered to give where they want, but those five charities still receive a significant lump sum that they can count on.

And what about the emotional connection to actual people who need help? Are these new giving models making that connection more or less important?

There are two kinds of impact: actual and perceived impact. Both are important, but for different reasons. Actual impact is important for charities because they want to show they are getting things done with the money they receive. Websites like Charity Navigator allow donors to assess the efficiency of different charities in order to turn money into actual impact.

But we’ve found in that, for givers, perceived impact is extremely important. This is the feeling that you’ve had an impact on a specific person, and it’s crucial to making you feel good about the giving process. Very often, actual impact and perceived impact align. If I give to a specific child, for example, I can see that I’m having a specific impact on that person.

Is it a problem that the person giving may feel emotional benefits, but not necessarily the person supposedly receiving the gift? 

We have conducted a great deal of research on exactly this point, and there are some organizations that get it right. I work with the non-profit DonorsChoose, which allows people to donate directly to public school classrooms. You can search for your hometown or a keyword like “novels,” and give a specific thing to a specific classroom.

The teacher and kids write you back saying, “thanks, here is how we used your gift.” DonorsChoose has gotten impact exactly right. Not only can I give where and what I want, but I have evidence that I had impact on specific people.

Switching gears a bit, what are you seeing when it comes to retailers who ask you to, say, donate $2.00 to some organization at the cash register or online checkout? And are companies starting to think differently about giving when it comes to customers?

Marketers are responding to countless surveys purporting to show that Millennials really, really care about saving the world, much more so than previous generations. Millennials feel, “I want to do good at the same time that I’m buying the things that I want.” Many companies are responding by showing that, not only are they not doing harm, but that buying their product has positive externalities.

At Warby Parker, the hipster eyeglass retailer, for every pair you buy, one pair goes to a person who needs glasses.  Consumers still get the cool product, but they also get the feeling that they are helping somebody else.

Are people inclined to give without that sort of product tie-in, something that’s in it for them?

Katherine White at the University of British Columbia and her colleagues have a new paper on “slactivism.” They show that when people click the “Like” button on Facebook for a cause, they feel like they’ve done something good — and therefore don’t need to actually give money to the cause or volunteer.

It’s very subtle. People want to feel and look like they are doing good, but it’s not clear that they actually need to follow through in order to accomplish those goals.

Are there any campaigns that are innovating in the realm that don’t involve a product quid pro quo?

One of the most ridiculous but successful innovations in charitable giving is men growing their facial hair in November to raise money and awareness for men’s health issues.  It makes no sense on one level — why can’t you just give money to charity, as opposed to grow a beard and then give money to charity?

But the campaign is extremely effective for a number of reasons. For one, it allows you to show everyone that you engaged in a charitable action. Often our charitable actions are hidden — we write a check and nobody sees it. Second, campaigns like this make charity fun. Charity is often a downer.

Like the  absurdly heart-wrenching ASCPA commercials .

There’s nothing wrong with those, but there are many consumers who respond more to doing something positive, and maybe even having fun while they are doing it.

There is a general move toward creativity in giving as opposed to simply saying: here are some sad people and you should give. Companies are trying to make charity a more interesting and engaging experience.

Are there other innovations in giving you want to note?

Yes. There’s a non-profit called TisBest that has a program called DiscoverGiving. They have a classroom activity for teachers where teachers give young students a “charity gift card” worth $1.00. The classroom plan encourages very young children to think about how money can be used not just for yourself, but to benefit others. So that’s another innovation: starting early.

Christmas Trees, If Kept Alive, Become Carbon Absorbers

In a temperate climate, conifers such as firs and spruces absorb little carbon dioxide in their early years, but their rate of absorption picks up at around age 20 and increases until 40 or 50 years, after which the growth rate of carbon accumulation slows until virtually stopping after 150 years. Because Christmas trees are usually harvested at a young age, they haven’t absorbed enough to compensate for the carbon emitted in their growth and harvesting stages, according to Chemistry & Industry. Thus, from a carbon standpoint, the best option is a potted tree that can be reused year after year.

Big Data and the Role of Intuition

Many people have asked me over the years about whether intuition has a role in the analytics and data-driven organization. I have always reassured them that there are plenty of places where intuition is still relevant. For example, a hypothesis is an intuition about what’s going on in the data you have about the world. The difference with analytics, of course, is that you don’t stop with the intuition — you test the hypothesis to learn whether your intuition is correct.

Another place where intuition is found in analytical companies is in the choice of the business area where analytical initiatives are undertaken. Few companies undertake a rigorous analytical study of what areas need analytics the most! The choice of a target domain is typically based on the gut feelings of executives. For example, at Caesars Entertainment — an early and continuing user of analytics in its business — the initial focus was on analytics for customer loyalty and service. CEO Gary Loveman noted that he knew that Caesars (then Harrah’s) had low levels of customer loyalty across its nationwide network of casinos. He had also done work while at Harvard Business School on the “service profit chain” — a theory that companies that improve customer service can improve financial results. While the theory had been applied and tested in several industries, it hadn’t been applied to gaming firms. But Loveman’s intuition about the value of loyalty and service was enough to propel years of analytics projects in those areas.

Of course, as with hypotheses, it’s important to confirm that your intuitions about where to apply analytics are actually valid. Loveman insists on an ROI from each analytics project at Caesars. Intuition plays an important role at the early stages of analytics strategy, however. In short, intuition’s role may be more limited in a highly analytical company, but it’s hardly extinct.

But how about with big data? Surely intuition isn’t particularly useful when there are massive amounts of data available for analysis. The companies in the online business that were early adopters of big data — Google, Facebook, LinkedIn, and so forth — had so much clickstream data available that no one needed hunches any more, correct?

Well, no, as it turns out. Major big data projects to create new products and services are often driven by intuition as well. Google’s self-driving car, for example, is described by its leaders as a big data project. Sebastian Thrun, a Google Fellow and Stanford professor, leads the project. He had an intuition that self-driving cars were possible well before all the necessary data, maps, and infrastructure were available. Motivated in part by the death of a friend in a traffic accident, he said in an interview that he formed a team to address the problem at Stanford without knowing what he was doing.

At LinkedIn, one of the company’s most successful data products, the People You May Know (PYMK) feature, was developed by Jonathan Goldman (now at Intuit) based on an intuition that people would be interested in what their former classmates and colleagues are up to. As he put it in an interview with me, he was “playing with ideas about how to help people build their networks.” That certainly sounds like an intuitive process.

Pete Skomoroch, who became Principal Data Scientist at LinkedIn a few years after PYMK was developed, believes that creativity and intuition are critical to the successful development of data products. He told me in an interview this week that companies with the courage to get behind the intuition of data scientists — without a lot of evidence yet that their ideas will be successful — are the ones that will develop successful data products. As with traditional analytics, Skomoroch notes that you have to eventually test your creativity with data and analysis. But he says that it may take several years before you know if an idea will really pay off.

So whether you’re talking about big data or conventional analytics, intuition has an important role to play. One might even say that developing the right mix of intuition and data-driven analysis is the ultimate key to success with this movement. Neither an all-intuition nor an all-analytics approach will get you to the promised land.

To Use Technology Effectively, Ask the Tough Questions

Over the years I’ve talked with hundreds of managers about the reasons for complexity in their organizations — and in almost all cases they cite “technology” as one of the main culprits.  But in the next breath, they also acknowledge that technology has revolutionized the way they work, increased personal productivity, and given them a whole new world of capabilities.  It’s an odd dichotomy: the notion that technology is a blessing and curse, a driver of improvement, and a source of frustration.  This often leaves managers wondering what they can do to increase the benefits and minimize the pain, both for themselves and their organizations.

To tackle this question, we first need to understand what’s behind this perception of technology as a paradoxical phenomenon.  In my experience, there seem to be two main issues: the accelerating rate of technological change and the often-unrealistic expectations that technology creates.

The exponential increase in the speed of technological introduction and commercialization was first described by Alvin Toffler in his 1970 book Future Shock.  Although primarily considered as a harbinger of the virtual society, one of Toffler’s key insights was that the cycle time between technological discovery and widespread commercialization was continually shrinking, which would force people to deal with continuous, rather than episodic, change.

For example, after the invention of the telephone, it took more than 80 years for much of the world to be connected (and even more in rural and economically depressed areas).  In contrast, the cell phone was invented in 1973, became commercially available within a decade — and now, only 40 years later, there are more than five billion such phones being used around the world.  Moreover, mobile phones these days are not just used for making calls, but for a host of other applications — with new ideas and technology being introduced almost daily.

The pace of these changes presents challenges across industries. Not long ago, I was facilitating a customer advisory board meeting for one of my technology clients, and the main recommendation was to slow down the introduction of new features because their organizations could not absorb them fast enough.  In other words, from their perspective, the continual onslaught of new technology was making things more complex and harder to manage.

On the other side is an increasingly unrealistic set of expectations about what people can accomplish with technology. Yes, we have the capacity for instantaneous, global communication, search, and transaction processing. But does that mean that all business should be conducted at warp speed? Many managers seem to report that this is what their customers, partners, and senior executives seem to expect, which drives them to work longer hours and continue business processes (e.g. emails and texts) while traveling, being with family, or on vacation.  This leads to a lack of time to think, reflect, recharge, or step back, which not only creates more complexity but also doesn’t allow managers to get control over their time.

Managers who want to minimize the complexity caused by technology therefore may need to think about the following two sets of questions:

What technological innovations should we actually adopt in our business, and what could we defer or delay?  And if we do accept new technologies, how can we absorb them without creating confusion or complexity?  The key here is to make sure that new technologies — or even new features and functions of old technologies — actually produce business value.  All too often we adopt new stuff because it is “cool” or sounds good, but we don’t examine whether it will actually provide a return on the investment.  And sometimes we don’t stop to ask how well our existing structures can support these innovations.  Unfortunately, if it doesn’t drive business value, than the only thing it might produce is more complexity.
How can we create more realistic expectations with our customers, clients, partners, and each other about the pace of work?  Are there ground rules that we can institute or ways that we can at least make the expectations more transparent and understood? Questions like these can help make it possible to be more explicit about the differences between handling high priority work and everything else. One easy mistake to make in our world of instantaneous communication is  treating all activities as being of equal value. If you are clear on what types of projects or questions warrant a quick response, it will help the rest of your team prioritize.

Obviously answering these questions won’t immediately reduce technologically-driven complexity.  But they might be a good place to start.

A Winning Culture Keeps Score

People often think of corporate culture as “soft” because it involves squishy things like values and expectations. That’s true as far as it goes—but winning cultures have a hard, metrics-driven element as well. A culture that feels upbeat and positive but doesn’t contribute to profitable growth or beating the competition is destined for the dustbin.

In sports, everyone gets that and knows what winning looks like. It’s reflected in your score, plain and simple. Sure, you track other numbers—what you might think of as key performance indicators—such as on-base percentage. The Boston Red Sox, the 2013 world champs in baseball, are known for their sabermetrics. But nobody in the organization thinks those stats are more important than outscoring opponents.

In many businesses, however, people have no clue what winning would mean. More profits? A higher stock price? How can I affect those? Maybe “winning” just means making my KPIs—or not getting laid off. Employees can’t get excited about winning, because they never know whether they’re winning or not. They need a score to tell them.

That’s what they get when they work for companies that practice open-book management. The trick is to focus everyone’s attention on a single key number—the one number that, if improved by a significant margin, will leave the business healthier and stronger at the end of the year. If that number is headed in the right direction, you’re ahead. If you hit an agreed-on target, you win.

For a small company, the key number might be something as simple as net profit. More often, it’s an easily understood indicator that contributes directly to the bottom line, such as an engineering firm’s billable hours or a hotel’s occupancy rate.

Larger companies usually expect each unit or function to come up with its own key number. When jet fuel was going through the roof a few years ago, the pilots at Southwest Airlines identified fuel usage as a key number. They learned to monitor it closely, and they came up with ways to help lower it.

But if different units’ KPIs aren’t closely connected, they may come into conflict with one another. At one mining company Bill worked with, production crews were measured on tons produced while maintenance was measured on maintenance costs. Production naturally worked the equipment hard, leading to breakdowns. Maintenance crews were slow to make repairs, lowering their own costs but hurting production. Eventually the company took an open-book approach, changing everyone’s key number to production profit, or production revenue (tons multiplied by price per ton) minus maintenance costs. Employees in these units not only found they could work together; they also got fired up about the improved financial performance they could generate.

What makes a number “key”?

You can’t pick just any old metric and call it a key number. A good one meets three conditions:

It’s directly connected to the financials. Improve the key number, and you get better financial results.
It’s not imposed from on high. Open-book companies consult with managers, employee teams, and other stakeholders to develop their key numbers. They ask: What are the biggest challenges we’re facing this year? The biggest opportunities? How can your unit best measure its contribution?
It’s for now—not forever. Companies’ situations change. Sometimes revenue growth is the top priority, other times profitability or cash flow. When a company makes progress on one objective, it may want to set its sights on another the following year.

Most open-book companies link progress on the key number to a bonus or some other incentive. Now everyone has a stake in winning—in making that number move. At Boardman Inc., a specialty manufacturer based in Oklahoma, managers and employees agreed that the key number was job margin dollars, meaning shipment revenue minus direct labor and direct materials. (Shop-floor employees in open-book companies learn to understand and use terms like that.) Managers and employees together set a target for improvement. When the company blew away the target in 2012, workers received a bonus of 10 weeks’ pay and Boardman enjoyed its most profitable year ever. Things look even better for 2013.

Part of the power of open-book management lies in its simplicity—deciding on and tracking that one key number. The process generates buy-in, because you’re asking people their views about what’s most important right now. And it helps them understand their own connections to the company’s financial results. Employees begin to think and behave like businesspeople with a vested interest in success—not like hired hands.

Culture That Drives Performance

An HBR Insight Center




The Defining Elements of a Winning Culture
There’s No Such Thing as a Culture Turnaround
The Three Pillars of a Teaming Culture
Three Steps to a High-Performance Culture

How Marketers Can Avoid Big Data Blind Spots

If you were looking for a theme song that captures marketing today, you could do worse than pick Queen’s anthem “Under Pressure.” Marketing is under pressure to show results, cut costs, and drive growth. Marketers should welcome it. That’s because marketing has a big opportunity to drive above-market growth and demonstrate its value to the C-suite and the boardroom. In our experience, marketing can increase marketing ROI (MROI) by 15 – 20 percent. That kind of value can turn plenty of heads in the C-suite.

How? The explosion of data about consumers and the analytics techniques now available have made marketing a much more precise science.

All this wonderful Big Data created by the digital revolution, however, has created a serious problem for marketers. Just because the data and analytical techniques are available doesn’t mean they provide complete insights. This is very much what Albert Einstein meant when he said, “Not everything that can be counted counts.”

Blind spots

Consumer decisions are driven also by many stimuli outside the digital realm (e.g. TV ads). This results in a number of issues, not the least of which is misattribution of cause and effect based on a tendency to measure what is easy to measure, ie. giving credit where credit isn’t necessarily due.

One energy company, for example, observed that their customer losses were closely correlated to the intensity of customers’ Google searches for an energy supplier. They built a customer churn econometric model in which search was responsible for 65% of churn. However, in-depth analytics revealed that customers’ decisions to switch energy providers were driven by their and competitors’ prices, advertising and company’s position in in social media, TV, print and other mass media. When all these additional explanatory factors were included in the customer churn model, search was not the cause of customer churn since people had already made up their minds by the time they were searching.

Most recently we’ve seen a lot of companies with claims about the ability of their analytical tools to provide a silver bullet set of answers to any marketing question. In our experience, those claims are hard to back up in the real world. What we see that’s most effective is having the right combination of tools and capabilities with as clear a sense of what they cannot do as what they can.

Overcoming “short-term-ism”

One major blind spot for marketers to be aware of is “short-term-ism” that most analytics engender. The reality is that the majority of marketing activities have both a short- and long-term impact on sales. The short-term impact is typically responsible for 10-30 percent of total sales while the long-term impact (called also the “base” or brand-building impact) is 1-3 times greater than the short-term effect. Big data-based analytical approaches, however, such as econometric and digital attribution modeling, for example, can detect only the short-term impact of marketing. What this means in practice is that the majority of data and analytics provide marketers with a short-term picture and can lead to short-term decisions that are detrimental to the long-term sales performance.

Given this reality, marketers need to overlay their Big Data models with analysis of the longer-term brand equity effect responsible for the remaining “base” of 70-90 percent of sales. Without ongoing investment in the brand, the value of this base erodes over time and creates a stiff head wind for future sales.

To understand long-term effects, companies first need to create a baseline by estimating the potential decline in base sales if all marketing activities would be stopped. Reviewing marketing investments and brand performance of multinational companies across regions is a good place to start since that data often yields a useful set of measurements of the impact of “brand leakage” (ie. how much base sales is lost and at what rate). That estimate then needs to be tested and adjusted systematically based on the unique situation of the company using the experience and judgment of marketing and sales managers, as well as other internal data (e.g. customer surveys).

These estimates can then help determine the Net Present Value (NPV) of the long term effect of marketing in terms of future sales. This NPV provides marketers with a reasonable understanding of the long-term implications of marketing in addition to the short term impact measured by Big Data and help make necessary trade-offs when it comes to making spend decisions. Although this is not a perfect science, we think it’s better to be “roughly right” than “precisely wrong.”

One consumer food brand almost fell into this short-term trap. It launched a campaign using Facebook advertising, contests, sponsored blogs, photo-sharing incentives, and shared shopping list apps. The approach paid off, delivering sales results similar to those generated by more traditional marketing (which included heavy TV advertising and significant print), at a fraction of the cost.

Given the overwhelming success of this effort, the brand considered shifting significant spend from TV and print advertising to digital and social media channels. When the long-term effects were included in the calculations, however, the proportion of impact of digital dropped by half because most of digital activities (search, display, etc.) typically are short-term calls to action and contribute little to building the brand and consumer loyalty. Significant cuts to TV spend as suggested by traditional econometric modeling would have reduced the net present value of the brand’s profit.

Marketing analytics is far from a monolithic approach. It’s actually a collection of approaches and techniques that, when systematically applied across a specific set of issues, delivers useful insights for making marketing investments that pay off. The latest wave of data combined with the right models can illuminate a lot. But smart marketers will spend just as much time looking for their data’s blind spots.